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The Employer's Legal Resource: Linking In May be a Sweet Deal

05.01.15

A federal district court in California recently dismissed a class action lawsuit against LinkedIn under the Fair Credit Reporting Act ("FCRA"). The plaintiffs in Sweet v. LinkedIn Corp. were a group of employees who had applied for jobs with various employers and ultimately were not hired for those positions. The employers used LinkedIn's "Reference Search" function to find people with whom the applicants had worked previously. The "Reference Search" function requires a paid subscription and LinkedIn markets it as a way for potential employers to find "trusted" references and get the "real story on any candidate." When a potential employer uses "Reference Search" to look into a particular applicant, it is provided with the names of the applicant's current and former employers, as well as a list of other LinkedIn members who are in the same network as the person or company conducting the search and who may have worked at the same company during the sam e time period as the applicant, including the purported reference's common employer with the applicant, job position, and dates of employment.

The FCRA establishes certain requirements for businesses and protections for individuals when a "consumer reporting agency" provides a "consumer report." Consumer reports include any "written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for (A) credit or insurance...purposes; or (B) employment purposes." A consumer report does not include a "report containing information solely as to transactions or experiences between the consumer and the person making the report." A consumer reporting agency is defined by the FCRA as any person or entity "which, for monetary fees...regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties."

The FCRA therefore applies to background reports and other reference checks in connection with an application for employment when the employer pays a third party to conduct that background check.

The Sweet court ruled that LinkedIn's "Reference Search" was not a "consumer report" and that LinkedIn was not a "consumer reporting agency" under the FCRA.

The court concluded that LinkedIn's "Reference Search" was not a consumer report because the information in the applicant's employment history came solely from LinkedIn's own transactions with the applicant and information the applicant voluntarily provided to LinkedIn. Further, the applicants provided their employment histories to LinkedIn for the specific purpose of sharing such information so that LinkedIn could publish it online. The court additionally noted that the "Reference Search" was not a consumer report because the information contained therein did not bear on the applicant's character, general reputation, or mode of living. The fact that an applicant may be well-connected in a particular industry or associate with well-respected people in a certain location does not bear on that consumer's relevant characteristics in establishing eligibility for employment. Moreover, the court highlighted that LinkedIn's "Reference Search" results d o not even indicate that the applicant's actually knew or associated with the supposed references, but rather that those individuals were in the searching employer's network (not the applicant's network). In reality, this information would show whether the searcher, not the applicant that is the subject of the search, is well-connected in a certain industry or is associated with a notorious person.

For similar reasons, LinkedIn was not considered to be a consumer reporting agency. The applicants voluntarily provided their names and employment histories and LinkedIn therefore did not gather the background information for the purpose of furnishing consumer reports, but rather to "carry out the consumers' information-sharing objectives."

While we have no opinion on whether an employer should use LinkedIn, or any such service, to screen applicants, this serves as a reminder that there are a myriad of such opportunities to employers. Each one must be scrutinized to determine whether it requires employers to comply with the FCRA.